Star-Ledger file photo Gov. Chris Christie says having only two of New Jersey’s 566 towns seeking a referendum proves the cap on property taxes is working. He’s encouraging residents in those towns to "call their bluff."

TRENTON — In the second year since Gov. Chris Christie enacted a 2 percent ceiling on how much municipalities can collect in property taxes, only two towns are asking voters for permission to spend more.

And the combative governor is urging voters in those towns to turn them down.

Voters in Lawrence and Medford will decide tomorrow between cutbacks in municipal services and a hike in property taxes. The borough council in Demarest, Bergen County will figure out tonight whether it will seek a May 8 referendum vote.

Last year, 14 towns asked voters to exceed the 2 percent cap, and 12 voted no — including Medford, where the question was rejected by 84 percent of the voters.

Christie says having only two of New Jersey’s 566 towns seeking a referendum proves the cap on property taxes is working. He’s encouraging residents in those towns to "call their bluff."

"I know they’re looking for ways to get around the cap," Christie said of the towns on 101.5’s Ask the Governor show. "They gotta find other things to cut. I think you call their bluff."

But officials in those two towns say there’s no way around it.

"I assure the governor we’re not bluffing," said Mayor James Pace, who pointed out how past local leaders spent Medford into a hole.

If the referendum is defeated, trash pick-up will be eliminated and there could be more municipal layoffs.

Lawrence will levy a $28 a month fee for garbage collection if the referendum is voted down. If the cap succeeds, the average homeowner will pay $145 more a year for a home assessed at $161,292, the town’s average.

"We’re being proactive because our difficulty is we have been subject to a large number of tax appeals over a very short amount of time," said Lawrence Township Manager Richard Krawczun. He said the town has laid off 10 percent of its work force, increased user fees and entered into more than 30 shared service partnerships.

Experts say towns may cut services to avoid going to a vote.

"They’re going to do everything within their power appropriately to not require that they go out there," said Ray Caprio, a professor of public administration at Rutger’s Bloustein school. "Towns will hit a point where taxpayers will be wanting to make that decision, ‘I don’t want this service to go and I’m willing to pay for it.’"

He said most towns have little control over big-ticket items such as pension and health costs for employees and state mandates.

"We all want as much service as possible for as few dollars as possible," Caprio said. "It’s not so easy to come up with creative solutions."

The cap restricts how much a town can raise in total property taxes over 2 percent. It has four exceptions: debt payments, state of emergency costs, and pension and health benefits for workers.

Bill Dressel, executive director of the State League of Municipalities, said towns have cut services, entered into more sharing agreements, and instituted user fees on things like parking and recreation to try to balance their budgets.

"Nobody wants to increase taxes or reduce services, that is the course of last resort," he said. "The whole story is yet to be told on what local officials have to deal with."

Both towns with votesTuesday said they have held several public meetings to explain the situation to residents.

"Many people come (to the meetings) angry over the need to raise taxes," said Krawczun. "Upon leaving they may not be satisfied that we need to raise taxes but better understand the actions being taken and why those actions are needed."